The Middletown Press (Middletown, CT)
Debate on drug pricing wages on
CT lawmakers, pharma agree on issue, disagree on approach
Connecticut’s U.S. senators said that they want to lower prescription drug prices. So do pharmaceutical giants Eli Lilly & Co. and Pfizer, which have major operations in the state.
But the lawmakers and those companies disagree sharply about how to do so.
The debate has crystallized as Congress members hammer out President Joe Biden’s 10-year, $3.5 trillion spending plan. The final version of that “budget reconciliation” legislation might allow Medicare to directly negotiate the prices of many prescription drugs — a change that could generate billions of dollars in savings.
Many pharmaceutical executives warn that the ensuing loss of revenues for their industry could severely hinder research and development, but Democrats such as Sens. Richard Blumenthal and Chris Murphy counter that letting Medicare negotiate would reduce prices for its senior citizen beneficiaries without diminishing innovation.
“Nothing is more important than lowering the cost of pharmaceutical drug prices for the everyday American,” Blumenthal said in an interview. “People are ravaged by these drug prices. There is no reason for them to be this high.”
Debate about drug pricing
Millions of Americans grapple with burdensome costs for prescription drugs. Nearly 30 percent of adults reported not taking their medicines as prescribed at some point in the past year because of the cost, according to a 2019 poll conducted by the Kaiser Family Foundation.
“In the most powerful, affluent country in the world, people should not have to skip doses of needed medication because they can’t afford it,” Murphy said in a statement. “That’s why the quickest, most impactful thing we can do is give Medicare the authority to negotiate the price of prescription drugs directly with pharmaceutical companies. Allowing the federal government to bargain for lower drug prices will save taxpayers billions and result in big savings for consumers. It’s a no-brainer.”
Pharmaceutical executives disagree — among them, Eli Lilly CEO and Chairman David Ricks. The Indianapolis-headquartered Lilly, the No. 118 company on this year’s Fortune 500 list, acquired Stamfordbased Loxo Oncology for about $8 billion in 2019. Loxo employs 60 in its home city.
“Ninety-eight percent of all prescriptions that we sell are already negotiated (with government and commercial insurers), so it’s a myth to say government isn’t negotiating for drugs,” Ricks said in an interview. “It’s just partly done through third parties. The problem they’re purporting to fix is not a problem.”
Under current law, the federal government is “prohibited from interfering with the negotiations between Part D plan sponsors, pharmacies and manufacturers for prescription drug prices under Medicare Part D,” a spokesperson for the Centers for Medicare & Medicaid Services said in an email, in response to an inquiry from Hearst Connecticut Media about Medicare’s negotiating parameters.
HR 3 — the Elijah E. Cummings Lower Drug Costs Now Act — has demonstrated that many Congressional Democrats are intent on lifting those restrictions.
The legislation requires the U.S. Department of Health and Human Services to negotiate maximum prices for “single-source, brandname drugs that lack certain generics and that are among either the 125 drugs that account for the greatest national spending or the 125 drugs that account for the greatest Medicare spending.”
Prices paid in Australia, Canada, France, Germany, Japan and the United Kingdom would serve as benchmarks in negotiating the maximum prices. Drug manufacturers that did not comply with the negotiation requirements would face civil and tax penalties.
HR 3 passed in the U.S. House of Representatives in December 2019, but it has not been voted on in the Senate. It is to be determined whether any of its main components will be incorporated into the final version of the budget reconciliation bill. The House Energy and Commerce Committee last month voted to drop the proposal to let Medicare negotiate drug prices from its part of the reconciliation legislation, but the House Ways and Means Committee kept it on the table by approving nearly identical drug-pricing language.
Lilly officials estimate that the pharmaceutical industry could lose about $700 billion in revenues over the next 10 years if HR 3 or equivalent legislation were implemented. They warn that such a loss could significantly diminish its research and development capabilities — including R&D for Loxo, which has two Food & Drug Administration-approved drugs for rare genetic mutations linked to a number of cancers.
“If we have good benefit design, new medicines can be afforded. Generic medicines come and make things cheaper for everyone — and, at the same time, we continue to do research for the ‘new Vitrakvi,’ which is expensive to develop,” said Ricks, referring to Loxo’s first drug, which gained FDA approval in November 2018. “Without the promise of a market, which is what HR 3 would destroy, no one will try ... to find these drugs.”
Pfizer, the No. 77 company on this year’s Fortune list, took a similar position. The Manhattan-headquartered firm employs nearly 5,300 in Connecticut, and its facility in Groton played a key role in the development of its COVID-19 vaccine.
“Pfizer recognizes that we have a responsibility to do our part to reduce drug prices, but we believe that it must be done in a way that doesn’t harm innovation, job creation and, most importantly, the company’s ability to deliver breakthrough health care solutions to patients,” Pfizer said in a statement. “Price controls have been tried and tested in other countries, and they have failed.”
Blumenthal responded that allowing Medicare to negotiate prices would not diminish the R&D capabilities of large pharmaceutical companies because he believes that their finances would remain robust. For the first half of 2021, Lilly produced a profit of about $2.75 billion, down 4 percent from the same period in 2020. In the first half of this year, Pfizer recorded a profit of about $10.4 billion, up 53 percent from a year ago.
“They make it appear that you can’t lower pharmaceutical drug prices without sacrificing research and development of new products,” Blumenthal said. “Lower pharmaceutical drug costs simply mean they don’t make gargantuan, huge profits. They would make decent and fair profits. But they would still have plenty of revenue to develop new drugs.”
Some health care policy experts said that pharmaceutical companies were justified in expressing concerns about how enacting Medicare drug-price negotiating would affect research and development, but that it would be difficult to predict the exact impact.
“Innovation in the U.S.A. is higher not simply because of the protection from government regarding the profitability of the pharmaceutical companies,” said Resul Cesur, an associate professor of health care economics at the University of Connecticut. “There may be an effect on innovation, but nobody has the causal answers to this.”
Other ways to reduce costs?
Lilly officials argue that Medicare’s spending for prescription-drug coverage is reasonable. The Congressional Budget Office estimates that spending on Part D benefits will total $111 billion in 2022, accounting for 15 percent of net Medicare outlays.
“What the American economy pays for drugs is not a problem,” Ricks said. “What it’s not doing a good job of is lowering costs for patients at the point of sale.”
In place of the changes outlined in HR 3, Lilly officials said that they support other reforms such as capping out-of-pocket costs incurred by patients who are enrolled in Medicare Part D.
“There’s an enormous bias in the insurance system against drugs, and we think that should be eliminated,” Ricks said. “So how do you do that — you lower out-ofpocket contributions in plan design. I think we should start with the Part D benefit, which is the senior drug benefit, because the federal government directly controls it.”
In their statement, Pfizer officials also backed capping out-of-pocket expenditures for Part D beneficiaries. In addition, they said “we believe rebates either should be eliminated or be guaranteed to go directly to patients and not to the pockets of middlemen. And we believe patients should have access to lower cost alternatives like biosimilars.”
UConn’s Cesur said that reining in drug costs would require action on a number of fronts. But he said that supporters of HR 3 were justified in wanting to focus now on Medicare’s negotiating powers.
“Saying that Medicare shouldn’t negotiate — that doesn’t make sense to me. Should we say that Walmart shouldn’t negotiate when they purchase? Of course, they should negotiate,” Cesur said. “I don’t see anything violated when it comes to the principles of having an efficient and free market.”